Question

In January 2017, Crane Company, a newly formed company, issued 9500 shares of its $8 par common stock for $13 per share. On July 1, 2017, Crane Company reacquired 950 shares of its outstanding stock for $10 per share. The acquisition of these treasury shares

a. increased total stockholders' equity.

b. decreased the number of issued shares.

c. decreased total stockholders' equity.

d. did not change total stockholders' equity.

Answer 1

The right answer is option (C) decreased total stockholders' equity.

Justification:

• In case of Treasury shares, there will be an increase in treasury stock and as a result there will be a decrease in shareholders equity because Treasury share are in contra to Share capital.
• Shareholders equity at the time of Formation of Company and reacquisition of treasury shares:

Statement of stockholders equity at the time of Formation of company
Particulars	Per Share	Number of Shares	Total Amount ($)
Paid up Capital	8	9500	76,000.00
Paid in capital in excess of par	5	9500	47,500.00
Total Share holders equity	13	9500	1,23,500.00

Statement of stockholders equity after requiring treasury shares
Particulars	Per Share	Number of Shares	Total Amount ($)
Paid up Capital	8	8550 (9500-950)	68,400.00
Paid in capital in excess of par	5	8550	42,750.00
Share holders equity before Treasury Shares	13	8550	111,150.00
Treasury Shares	10	950	9,500.00
Total Share holders equity		9500 (8550+950)	1,20,650.00 (9500+111,150)